Many global banks insist that issues such as environmental, social and strategic governance (ESG) – variously called corporate social responsibility (CSR) or sustainable finance – are high on their list of priorities. But the profits and reputation of many of them collapsed in the recent and ongoing subprime debacle, which is evidence that a focus on these factors is not embedded in their investment choices.
The Banker partnered with Innovest Strategic Value Advisors, which is ranked number one by Thomson Extel for the provision of extra-financial research to the investment community, to rank global banks in terms of ESG. Our definition of ESG involves more than just the avoidance of lending to a mining company involved in a project that is boycotted by the World Bank, or the reduction of carbon emissions, important as these factors are. It also involves focusing on risk-adjusted profits, a strategy that we believe will become ever more crucial to a bank’s performance. It is about marrying the heart and the head. Already, share prices of the global banks that have taken on board this forward-thinking attitude have outperformed those that have not yet fully incorporated ESG (see graph below).
